Publication 554: Older Americans' Tax Guide; Chapter 4

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Table of Contents

Most taxpayers have a choice of taking a standard deduction or itemizing their deductions. You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. If you have a choice, you should use the method that gives you the lower tax.

Standard Deduction

The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions. The standard deduction is higher for taxpayers who are age 65 or older or blind.

The standard deduction amounts for most taxpayers under age 65 are shown in Table 4-1.

Persons not eligible for the standard deduction. Your standard deduction is zero and you should itemize any deductions you have if:

You are married and filing a separate return, and your spouse itemizes deductions,
You are filing a tax return for a short tax year because of a change in your annual accounting period, or
You are a nonresident or dual-status alien during the year. You are considered a dual-status alien if you were both a nonresident alien and a resident alien during the year.

If you are a nonresident alien who is married to a U.S. citizen or resident at the end of the year, you can choose to be treated as a U.S. resident. See Publication 519, U.S. Tax Guide for Aliens. If you make this choice, you can take the standard deduction.

Higher standard deduction for age 65 or older. You are entitled to a higher standard deduction if you are age 65 or older at the end of the year. You are considered 65 on the day before your 65th birthday. Therefore, you can take the higher standard deduction for 2004 if you were born on or before January 2,1940.

Use Table 4-2 to find the amount of your standard deduction.

Higher standard deduction for blindness. If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. Use Table 4-2 to find the amount. You qualify for this benefit if you are totally or partly blind.

Partly blind. If you are partly blind, you must get a certified statement from an eye physician or registered optometrist that:

You cannot see better than 20/200 in the better eye with glasses or contact lenses, or
Your field of vision is not more than 20 degrees.

If your eye condition will never improve beyond these limits, the statement should include this fact. You must keep the statement in your records.

If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify.

Spouse 65 or older or blind. You can take a higher standard deduction if your spouse is age 65 or older or blind and:

You file a joint return, or
You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and an exemption for your spouse could not be claimed by another taxpayer.

You cannot claim the higher standard deduction for an individual other than yourself and your spouse.

2004 Standard Deduction Tables

Table 4-1. Standard Deduction Chart for People Under Age 65*

If Your Filing Status is:	Your Standard Deduction is:
Single or Married filing separately	$4,850
Married filing jointly or Qualifying widow(er) with dependent child	9,700
Head of household	7,150

*Do not use this chart if you were 65 or older or blind, or if someone else can claim an exemption for you (or your spouse if married filing
jointly). Use Table 4-2 or 4-3 instead.

Table 4-2. Standard Deduction Chart for People Age 65 or Older or Blind*

Check the correct number of boxes below. Then go to the chart.
You	65 or older	Blind
Your spouse, if claiming spouse's exemption	65 or older	Blind
Total number of boxes you checked
If Your Filing Status is:	And the Number in the Box Above is:	Your Standard Deduction is:
Single	1	$6,050
	2	7,250
Married filing jointly	1	10,650
or Qualifying	2	11,600
widow(er) with	3	12,550
dependent child	4	13,500
Married filing	1	5,800
separately	2	6,750
	3	7,700
	4	8,650
Head of household	1	8,350
	2	9,550

*If someone can claim an exemption for you (or your spouse if married filing jointly), use Table 4-3, instead.

If you are married filling a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were 65 or older or blind.

Table 4-3. Standard Deduction Worksheet for Dependents*

If you were 65 or older or blind, check the correct number of boxes below. Then go to the worksheet.
You	65 or older	Blind
Your spouse, if claiming spouse's exemption	65 or older	Blind
Total number of boxes you checked

1.		Enter your earned income (defined below). If none, enter -0-.	1.
2.		Additional amount.	2.	$250
3.		Add lines 1 and 2.	3.
4.		Minimum standard deduction.	4.	$800
5.		Enter the larger of line 3 or line 4.	5.
6.		Enter the amount shown below for your filing status.
	•	Single or Married filing separately— $4,850	6.
	•	Married filing jointly or Qualifying widow(er) with dependent child—$9,700
	•	Head of household—$7,150
7.	Standard deduction.
	a.	Enter the smaller of line 5 or line 6. If under 65 and not blind, stop here. This is your standard deduction. Otherwise, go on to line 7b.	7a.
	b.	If 65 or older or blind, multiply $1,200 ($950 if married or qualifying widow(er) with dependent child) by the number in the box above.	7b.
	c.	Add lines 7a and 7b. This is your standard deduction for 2004.	7c.

Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also includes any amount received as a scholarship that you must include in your income.

*Use this worksheet only if someone else can claim an exemption for you (or your spouse if married filing jointly).

Decedents. The amount of the standard deduction for a decedent's final return is the same as it would have been had the decedent continued to live. However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed.

Examples. The following examples illustrate how to determine your standard deduction using Tables 4-1 and 4-2.

Example 1.

Larry, 66, and Donna, 67, are filing a joint return for 2004. Neither is blind. They decide not to itemize their deductions. They use Table 4-2. Their standard deduction is $11,600.

Example 2.

Assume the same facts as in Example 1 except that Larry is blind at the end of 2004. They use Table 4-2. Larry and Donna's standard deduction is $12,550.

Example 3.

Susan, 67, who is blind, qualifies as head of household in 2004. She has no itemized deductions. She uses Table 4-2. Her standard deduction is $9,550.

Standard Deduction for Dependents

The standard deduction for an individual for whom an exemption can be claimed on another person's tax return generally is limited to the greater of:

$800, or
The individual's earned income for the year plus $250 (but not more than the regular standard deduction amount, generally $4,850).

However, if the individual is age 65 or older or blind, his or her standard deduction may be higher. Use Table 4-3 to determine his or her standard deduction.

Itemized Deductions

Some individuals should itemize their deductions because it will save them money. Others should itemize because they do not qualify for the standard deduction. See the discussion under Standard Deduction, earlier, to decide if it would be to your advantage to itemize deductions.

Medical and dental expenses, some taxes, certain interest expenses, charitable contributions, certain losses, and other miscellaneous expenses may be itemized as deductions on Schedule A (Form 1040).

You may be subject to a limit on some of your itemized deductions if your adjusted gross income (AGI) is more than $142,700 ($71,350 if you file married filing separately).

You may benefit from itemizing your deductions on Schedule A (Form 1040) if you:

Cannot take the standard deduction,
Had uninsured medical or dental expenses that are more than 7.5% of your adjusted gross income (see Medical and Dental Expenses, next),
Paid interest and taxes on your home,
Had large unreimbursed employee business expenses or other miscellaneous deductions,
Had large uninsured casualty or theft losses,
Made large contributions to qualified charities (see Publication 526, Charitable Contributions), or
Have total itemized deductions that are more than the highest standard deduction you can claim.

See the Schedule A (Form 1040) instructions for more information.

Medical and Dental Expenses

You can deduct certain medical and dental expenses you paid for yourself, your spouse, and your dependents, if you itemize your deductions on Schedule A (Form 1040).

Table 4-4 shows items that you can or cannot include in figuring your medical expense deduction. More information can be found in Publication 502, Medical and Dental Expenses.

You can deduct only the amount of your medical and dental expenses that is more than 7.5% of your adjusted gross income shown on Form 1040, line 36.

What to include. Generally, you can include only the medical and dental expenses you paid this year, regardless of when the services were provided. If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. If you use a pay-by-phone or online account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. You can include medical expenses you charge to your credit card in the year the charge is made. It does not matter when you actually pay the amount charged.

Medical Insurance Premiums

You can include in medical expenses insurance premiums you pay for policies that cover medical care. Policies can provide payment for:

Hospitalization, surgical fees, X-rays, etc.,
Prescription drugs,
Replacement of lost or damaged contact lenses,
Qualified long-term care insurance contracts (subject to additional limits), or
Membership in an association that gives cooperative or so-called free-choice medical service, or group hospitalization and clinical care.

You cannot deduct insurance premiums paid with pretax dollars because the premiums are not included on Form W-2, box 1.

If you have a policy that provides more than one kind of payment, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. The cost of the medical portion must be separately stated in the insurance contract or given to you in a separate statement.

Medicare A. If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. The payroll tax paid for Medicare A is not a medical expense. If you are not covered under social security (or were not a government employee who paid Medicare tax), you can enroll voluntarily in Medicare A. In this situation you can include the premiums you paid for Medicare A as a medical expense on your tax return.

Medicare B. Medicare B is a supplemental medical insurance. Premiums you pay for Medicare B are a medical expense. If you applied for it at age 65 or after you became disabled, you can include in medical expenses the monthly premiums you paid. If you were over age 65 or disabled when you first enrolled, check the information you received from the Social Security Administration to find out your premium.

Prepaid insurance premiums. Insurance premiums you pay before you are age 65 for medical care after you reach age 65 for yourself, your spouse, or your dependents, are medical care expenses in the year paid if they are:

Payable in equal yearly installments, or more often, and
Payable for at least 10 years, or until you reach 65 (but not for less than 5 years).

Meals and Lodging

You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if your main reason for being there is to receive medical care.

You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. You can include the cost of such lodging while away from home if all of the following requirements are met.

The lodging is primarily for, and essential to, medical care.
The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital.
The lodging is not lavish or extravagant under the circumstances.
There is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

The amount you include in medical expenses for lodging cannot be more than $50 per night for each person. You can include lodging for a person traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. (Meals are not included.)

Nursing home. You can include in medical expenses the cost of medical care in a nursing home or a home for the aged for yourself, your spouse, or your dependents. This includes the cost of meals and lodging in the home if a main reason for being there is to get medical care.

Do not include the cost of meals and lodging if the reason for being in the home is personal. However, you can include in medical expenses the part of the cost that is for medical or nursing care.

Table 4-4. Medical and Dental Expenses Checklist

You can include:		You cannot include:
Bandages Birth control pills prescribed by your doctor Capital expenses for equipment or improvements to your home needed for medical care (see Publication 502) Certain fertility enhancement procedures (see Publication 502) Certain weight-loss expenses for obesity Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc.) Lead-based paint removal (see Publication 502) Legal abortion Legal operation to prevent having children such as a vasectomy Long-term care contracts, qualified (see Publication 502) Meals and lodging provided by a hospital during medical treatment	Medical and hospital insurance premiums Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Publication 502) Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchair, etc.) Special school or home for mentally or physically disabled persons (see Publication 502) Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services (see Publication 502)	Contributions to Archer MSAs (see Publication 969) Baby sitting and childcare Bottled water Diaper service Expenses for your general health (even if following your doctor's advice) such as— —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pretax basis) (see Publication 502) Funeral, burial, or cremation expenses Health savings account payments for medical expenses (see Publication 502) Illegal operation or treatment Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. Maternity clothes	Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases (see Publication 502) Nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc., unless recommended by a medical practitioner as a treatment for a specific medical condition diagnosed by a physician Surgery for purely cosmetic reasons (see Publication 502) Toothpaste, toiletries, cosmetics, etc. Teeth whitening Weight-loss expenses not for the treatment of obesity

Table 4-4. Medical and Dental Expenses Checklist

You can include:		You cannot include:
Bandages Birth control pills prescribed by your doctor Capital expenses for equipment or improvements to your home needed for medical care (see Publication 502) Certain fertility enhancement procedures (see Publication 502) Certain weight-loss expenses for obesity Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc.) Lead-based paint removal (see Publication 502) Legal abortion Legal operation to prevent having children such as a vasectomy Long-term care contracts, qualified (see Publication 502) Meals and lodging provided by a hospital during medical treatment	Medical and hospital insurance premiums Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Publication 502) Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchair, etc.) Special school or home for mentally or physically disabled persons (see Publication 502) Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services (see Publication 502)	Contributions to Archer MSAs (see Publication 969) Baby sitting and childcare Bottled water Diaper service Expenses for your general health (even if following your doctor's advice) such as— —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pretax basis) (see Publication 502) Funeral, burial, or cremation expenses Health savings account payments for medical expenses (see Publication 502) Illegal operation or treatment Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. Maternity clothes	Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases (see Publication 502) Nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc., unless recommended by a medical practitioner as a treatment for a specific medical condition diagnosed by a physician Surgery for purely cosmetic reasons (see Publication 502) Toothpaste, toiletries, cosmetics, etc. Teeth whitening Weight-loss expenses not for the treatment of obesity

Transportation

Amounts paid for transportation primarily for, and essential to, medical care qualify as medical expenses.

You can include:

Bus, taxi, train, or plane fares or ambulance service payments,
Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and
Actual car expenses, such as gas, oil, parking fees, and tolls. Instead of deducting actual car expenses, you can deduct 14 cents a mile for use of your car for medical reasons. Add the cost of parking fees and tolls to this amount.

You cannot include depreciation, insurance, or general repair and maintenance expenses on your car, no matter which method you choose to figure the deduction.

Do not include transportation expenses if, for purely personal reasons, you choose to travel to another city for an operation or other medical care prescribed by your doctor.

Home Improvements

Only reasonable costs to accommodate a home to a person's disabled condition are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. Publication 502 contains additional information and examples, including a capital expense worksheet, to assist you in figuring the amount of the capital expense that you can include in your medical expenses. Also, see Publication 502 for information about deductible operating and upkeep expenses related to such capital expense items, and for information about improvements, for medical reasons, to property rented by a person with disabilities.

Chapter 4 - Deductions